MNB Issues Recommendation on Climate and Environmental Risks
MNB published the Recommendation No 47/2021. (IV. 14.) on climate and environmental risks for credit institutions. The Recommendation sets out the MNB expectations in relation to the identification, measurement, management, control, and disclosure of climate and environmental risks as well as to the integration of environmental sustainability considerations into the business activities of credit institutions. MNB expects credit institutions to mostly apply this Recommendation from June 01, 2021, with certain sections of the Recommendation becoming applicable from June 30, 2021.
The following are the key highlights of the expectations set out in the Recommendation:
- Supervisory expectations for integrating environmental sustainability considerations into business model and strategy. MNB expects credit institutions to identify the risks arising from climate change and environmental degradation at the level of key sectors, geographical areas, and in relation to the products and services in which they operate or plan to operate. MNB also expects credit institutions to identify and assess which climate and environmental risks are material to their business strategy in the short, medium, and long term, along with the resilience of their business strategy to these risks.
- Supervisory expectations for internal governance. MNB expects the management body of the credit institutions to have adequate collective knowledge, skills, and experience with regard to the climate and environmental risks. MNB also expects that a separate organizational unit or function ("Environmental, Social, and Governance or ESG center” or dedicated “chief sustainability officer”) responsible for the management and control of climate change and environmental risks is established within the credit institution or a senior manager is designated under the management body in its supervisory function, responsible for the management and control of climate and environmental risks.
- Supervisory expectations for risk management. MNB expects credit institutions to have a comprehensive and well-documented picture of the impact of climate and environmental risks on existing risk categories. Credit institutions are expected to develop appropriate risk indicators and set appropriate limits for climate and environmental risks. Credit institutions are also expected to monitor and disclose, where available, their policies for economic (sub)sectors, geographical exposures, and the current data on climate and environmental risk exposures, preferably in the form of quantitative measures. MNB has also set out its expectations with respect to management of credit, market, operational, and liquidity risks as well as expectations regarding the assessment of climate and environmental risks through the use of sensitivity, scenario analysis, or stress testing.
- Supervisory expectations for disclosures. MNB expects credit institutions to start preparing for the new disclosure requirements under Article 8 of the Taxonomy Regulation and Article 449a of the Capital Requirements Regulation or CRR. Under Article 8 of the Taxonomy Regulation, companies and financial institutions subject to the non-financial reporting directive will be required, from January 01, 2022, to provide additional transparency on the extent to which their activities are considered environmentally sustainable. In addition, Article 449a of CRR requires large institutions with securities traded on a regulated market to disclose information on certain ESG risks after June 28, 2022.
MNB expects credit institutions to conduct self-assessment, including a detailed gap analysis, in relation to the requirements detailed in this Recommendation. Based on the findings, the institutions are expected to develop an action plan to address the gaps and to submit this plan to MNB by September 30, 2021. Following an analysis of the submitted gap analysis, action plans, and prudential discussions, MNB will, after considering the EU legislative developments, set more detailed deadlines for the latest dates of compliance for the different expectations, which will be published in the context of the next revision of this Recommendation. MNB has also made available a “Knowledge Base” to help banks to comply with the supervisory Recommendation as soon as possible and to the greatest extent possible by presenting a collection of practical examples, good practices, available data sources, and methodologies.
Effective Date: June 01, 2021/June 30, 2021
Keywords: Europe, Hungary, Banking, Climate Change Risk, ESG, Sustainable Finance, Credit Risk, Market Risk, Operational Risk, Stress Testing, Disclosures, NFRD, Taxonomy Regulation, CRR, Recommendation, Recommendation 42/2021, Reporting, MNB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
EC Issues Disclosure Standards and Corrigendum on NSFR ReportingRelated Articles
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
